Pera Revenue Regulation-draft

Quezon City

January 31, 2009

REVENUE REGULATIONS NO. ________ SUBJECT

:

Implementing the Tax Provisions of Republic Act No. 9505, Otherwise Known as the “Personal Equity and Retirement Account (PERA) Act of 2008”

TO

:

All

Internal Revenue Officers and Others Concerned

SECTION 1. Scope. - Pursuant to Section 244 of the National Internal Revenue Code of 1997, as amended, in relation to Sections 15 and 16 of R.A. No. 9505, otherwise known as the “Personal Equity and Retirement Account (PERA) Act of 2008,” these Regulations are hereby promulgated to implement the tax provisions of the said Act thereby establishing uniform guidelines in the administration of tax privileges and incentives of the Contributors under the said law and provide for the rules on qualification and disqualification standards, as well as accreditation of Administrators, in coordination with the concerned Regulatory Authorities. SEC. 2. Definition of Terms. – Unless the context otherwise requires, the following terms shall have the following meanings for purposes of these Regulations, viz: (a) “PERA Act” – shall refer to Republic Act No. 9505, otherwise known as the Personal Equity and Retirement Account (PERA) Act of 2008. (b) “PERA Rules” – shall refer to the rules and regulations implementing the PERA Act jointly promulgated by the Regulatory Authorities, namely, the Bangko Sentral ng Pilipinas, Securities and Exchange Commission, the Office of the Insurance Commission and the Bureau of Internal Revenue. (c) “Personal Equity and Retirement Account (PERA)” – shall refer to an individual’s provident personal savings and investment plan, which is a voluntary retirement account established by and for the exclusive use and benefit of the Contributor for the purpose of being invested solely in PERA investment products in the Philippines.

(d) following:

“Qualified/Eligible PERA Investment Products” – shall

refer to the

(1) a unit investment trust fund (UITF); (2) share of stock of mutual fund; (3) annuity contract; (4 insurance pension product; (5) pre-need pension plan; (6) shares of stock or other securities listed and traded in the local stock exchange; (7) exchange-traded bond; or (8) any other investment product or outlet which the concerned Regulatory Authority may allow for PERA purposes. To qualify as a PERA investment product, the product must be non-speculative, readily marketable, and with a track record of regular income payments to investors. Each specific product must be approved first by the concerned Regulatory Authority in accordance with the provisions of the PERA Rules before the income or distribution therefrom can be granted certain tax privileges and incentives by the BIR. (e) “Maximum Qualified PERA Contributions” – shall refer to the investment products duly approved by the concerned Regulatory Authority placed by the Contributor in his PERA, which had been qualified by the concerned Regulatory Authority and shall be entitled to certain tax privileges and incentives if the amount contributed in cash, or its equivalent in any convertible foreign currency at the prevailing rate at the time of the actual contribution, does not exceed P100,000 per year (if the Contributor is a resident Filipino citizen), or P200,000 per year (if the Contributor is an Overseas Filipino), provided that the PERA is withdrawn only after the Contributor becomes 55 years of age and has made contributions for at least five (5) years. The Secretary of Finance may adjust the maximum contribution from time to time, taking into consideration the present value of the said maximum contribution using the Consumer Price Index as published by the National Statistics Office, fiscal position of the government and other pertinent factors. (f) “Qualified PERA Assets” - shall mean the aggregate qualified assets of the Contributor in his PERA at any one time, including the cash funds and the PERA investment products into which they are invested and reinvested, and all the income earned therefrom. But no portion of the PERA assets may be assigned, alienated,

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pledged, encumbered, attached, garnished, seized or levied upon. PERA Assets shall be kept separate from the other assets of an Administrator/Custodian and shall not be part of the general assets of the Administrator/Custodian for purposes of insolvency nor shall it be considered assets of the Contributor for purposes of insolvency and estate taxes. (g) “Early withdrawal” - shall pertain to (i) any withdrawal of qualified PERA Assets prior to reaching the age of fifty-five (55) years or the death of the Contributor, except when the entire proceeds from such withdrawal are immediately transferred to another PERA Investment Product and/or another Administrator; (ii) any withdrawal of PERA Assets before the Contributor has made at least five (5) annual contributions to his PERA, except when the entire proceeds from such withdrawal are immediately transferred to another PERA Investment Product and/or another Administrator; or (iii) a premature termination as described in Section 13 hereof. (h) “Overseas Filipino” – shall refer to (1) an individual citizen of the Philippines who is working or deriving income from abroad, including one who retained or reacquired his Philippine citizenship under R.A. No. 9225, otherwise known as the “Citizenship Retention and Reacquisition Act of 2003”; or (2) the legitimate spouse, whether or not said spouse is of Filipino ancestry, and the children of the Overseas Filipino, who have the capacity to contract and working or deriving income from abroad. (i) “Qualified Employer’s Contribution” – shall refer to the additional contribution made by the employer from the private sector to the PERA first established by his/its employees not to exceed the maximum amount allowable per year (i.e., P100,000) to the employee-contributor. Provided, that the employer’s contribution to his/its employee’s PERA shall not be used as a replacement to the employer’s contribution to the Social Security System (SSS) nor its obligation to pay retirement benefits to its employees under the Labor Code. The total of the employer’s and the employee’s contribution to his PERA and all the benefits, including tax incentives and privileges arising therefrom, shall all belong to the employee and shall not, in anyway, inure to the benefit of the employer. The employee also retains the prerogative to make investment decisions pertaining to his PERA, including the contribution made in his favor by his employer. (j) “Qualified PERA Investment Income” - shall refer to all the income earned by the Contributor from his qualified PERA contributions, including income from his employer’s qualified contribution to his PERA, which shall be exempt from income tax, provided that such income shall be withdrawn only after the Contributor has made at least five (5) yearly contributions to his PERA and has reached the age of fifty-five (55) years. (k) “Qualified PERA Distribution” – shall refer to the distribution of the qualified PERA contributions and/or the earnings arising therefrom, after making contributions for at least five (5) years and upon reaching the age of fifty-five (55) years. SEC. 3. Participants to the PERA. -

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(a) Contributor – shall refer to a BIR-registered individual taxpayer with a Tax Identification Number (TIN), who is of legal age and with the capacity to contract, who establishes and makes contributions to his PERA, and directly or through an Investment Manager, makes investment decisions for his PERA. He also retains the ownership, whether legal or beneficial, of funds placed in his PERA, including all earnings of such funds. He has the option to continue his PERA upon reaching the age of 55 or upon retirement but the same shall no longer be entitled to tax incentives and privileges. He may designate an Administrator for his PERA and maintain a maximum of five (5) PERA at any one time, provided that only one Administrator shall be designated for all his PERA. (b) Administrator – shall refer to an entity who had been first pre-qualified as Administrator by the concerned Regulatory Authority upon compliance with the qualifications prescribed under the PERA Rules, and later qualified and accredited as an Administrator by the Bureau of Internal Revenue (BIR) in accordance with the provisions of these Regulations, who shall be responsible for administering and overseeing the PERA of the Contributor, and whose core functions include, but not limited to, reporting on contributions made to the PERA of the Contributor; computing the values of investments; educating the Contributor; enforcing PERA contributions and withdrawal limits; paying taxes and penalties, if any, for and in behalf of the Contributor and acting as withholding tax agent, if necessary; applying for the Tax Credit Certificates of the Contributor; consolidating reports on all investments, income, expenses and withdrawals on the Contributor’s PERA; and ensuring that PERA contributions are invested in accordance with the prudential guidelines set by the Regulatory Authorities. (c) Custodian – shall refer to a BSP-accredited entity separate and distinct and operating independently from the Administrator, providing services in connection with the custodianship of funds and securities comprising the PERA investments of a Contributor; receiving all funds in connection with the PERA; maintaining custody of all original securities, evidence of deposits or other evidence of investments; and reporting to the Contributor and the concerned Regulatory Authority at regular intervals all financial transactions and all documents in its custody under the PERA of a Contributor. (d) Investment Manager – shall refer to a regulated person or entity authorized by the Contributor pursuant to an investment management agreement, either in writing or electronic form, to make investment decisions for his PERA. As such, it shall assume fiduciary duty and responsibility for the PERA investments of the Contributor. An Investment Manager shall act with utmost fidelity by observing policies directed towards confidentiality, scrupulous care, safety and prudent management of PERA funds. (e) Regulatory Authorities – shall refer to the (i) Bangko Sentral ng Pilipinas (BSP) as regards banks and other BSP-supervised financial institutions and trust entities; (ii) the Securities and Exchange Commission (SEC), for investment companies, investment houses, stockbrokerages and pre-need plan companies; and (iii) the Office of the Insurance Commission (OIC), for insurance companies.

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SEC. 4. Accreditation of Administrator. – I. An entity may only act as Administrator of the PERA of a Contributor after having been first pre-qualified, upon application, as such Administrator pursuant to the pre-qualification provisions under the PERA Rules by the following Regulatory Authorities, viz: (a) Bangko Sentral ng Pilipinas (BSP): For (i) banks, (ii) trust entities, and (iii) other BSP-supervised financial institutions. (b) Securities and Exchange Commission (SEC): For (i) investment company advisers, as defined under Republic Act No. 2692, otherwise known as the Investment Company Act; (ii) securities brokers who are not dealers; and (iii) pre-need plan companies. (c) Pre-qualification by the Office of the Insurance Commissioner (OIC): For (i) insurance companies; and (ii) independent insurance brokers. d) Any of the concerned Regulatory Authorities: For (i) other entities as may be determined by the concerned Regulatory Authority as having the requisites to pre-qualify as a PERA Administrator. II. All Administrators who passed the pre-qualificaton requirements of the concerned Regulatory Authority under the PERA Rules shall afterwards apply for accreditation with the Bureau of Internal Revenue (BIR) before assuming his/its core functions as Administrator. He must possess adequate systems and technological capabilities and the necessary technical expertise and personnel to ensure the proper recording of a Contributor’s PERA, and to be able to identify which contributions may or may not be entitled to tax privileges and incentives and which contributions are subject to certain taxes and penalties. III. For purposes of accreditation, the applicant-Administrator shall file an Application for Accreditation (BIR Form No. ____) in triplicate copies (2 copies for the BIR and 1 file copy for the applicant) to the Taxpayer’s Service Section (TSS) of the Revenue District Office (RDO) having jurisdiction over the applicant’s principal place of business, and shall pay an Accreditation Fee of Five hundred pesos (P500.00) to the Accredited Agent Bank (AAB) located within the aforementioned RDO. The

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Application for Accreditation and the Official Receipt of payment of Accreditation Fee shall be accompanied by the following documents: 1. Notarized Certificate of Pre-qualification issued by the Chief Executive Officer (CEO) of the concerned Regulatory Authority; 2. Certified true copy of the current Certificate of BIR Registration; 3. BIR Tax Clearance; 4. Certificate of Good Standing issued by the concerned Regulatory Authority; and 5. Duly stamped received copy of the Income Tax Return and Value-Added Tax or Percentage Tax Returns (if any), filed for the year immediately preceding the date of application for accreditation Upon submission of the complete documentary requirements, the Application for Accreditation shall be stamped “Received” by the TSS and forwarded to the RDO for evaluation. The Accreditation Certificate shall be signed by the concerned RDO and shall be issued within ten (10) days from the date of receipt of the complete documentary requirements by the TSS. The Accreditation Certificate shall be valid for a period of three (3) years from the date of issue subject to renewal every three (3) years, unless sooner revoked due to misconduct or violation of any of the provisions of the PERA Act, as implemented by the PERA Rules, and these Regulations. IV. The Application for Renewal of Accreditation (BIR Form No. ____). Before the expiration of the current Certificate of Registration, but not later than three (3) months prior to the expiration, the Administrator shall file his application for Renewal of Accreditation, together with the proof of payment of the Renewal Fee of Five hundred pesos (P500.00) and documentary requirements stated above to the Taxpayer’s Service Section (TSS) of the Revenue District Office (RDO) having jurisdiction over the applicant’s principal place of business, SEC. 5. Establishment of a PERA. – A Contributor may create and maintain a maximum of five (5) PERA, at any one time: Provided, That the Contributor shall designate and maintain only one (1) Administrator for all his PERA. The Contributor shall make all investment decisions pertaining to his PERA. However, he has the option of appointing an Investment Manager, either in writing or in electronic form, to make investment decisions on his behalf without prior consultation. SEC. 6. Registration of the Contributor and Reporting Requirements of PERA Contributions. – The Administrator shall register with the BIR each Contributor under his administration and shall likewise submit a Quarterly/Annual Report of the PERA contributions, withdrawals and/or termination. A. Registration of the Contributor. - The Administrator shall cause the registration with the BIR of each Contributor under his administration by filing an

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Application for Contributor’s Registration (BIR Form No. ____) in triplicate copies (2 copies for the BIR and 1 copy for the Contributor) to the RDO having jurisdiction over the Contributor’s registered address and payment of Registration Fee of Five hundred pesos (P500.00) within ten (10) days from the date of acceptance of the Administration Agreement. A copy of the Administration Agreement shall be attached to the Application for Contributor’s Registration to be filed with the BIR. B. Reporting Requirements of PERA Contributions, Withdrawals and/or Terminations. - The Administrator shall account for all the PERA contributions under his administration, and the withdrawals made by the Contributor and/or termination of any PERA under his administration on a quarterly basis not later than the tenth (10th) day of the following month after the end of the quarter. Each contribution, withdrawal and/or termination shall be supported by documentary proof of such contribution/withdrawal/termination (e.g., official receipt, withdrawal slip), duly acknowledged by the Contributor and the Custodian, if any. The Administrator shall also submit an Annual Report to the BIR of the PERA contributions, withdrawals and terminations made for each of the Contributors under his administration not later than the fifteenth (15th ) day of January of the following year. The report shall be submitted to the RDO having jurisdiction over the Contributor’s registered address. A copy of the BIR duly received copy of the Annual Report shall be furnished the Contributor within five (5) days from the date of submission to the BIR. The concerned RDO shall maintain a record of all registrants together with the movements of their PERA investments for monitoring purposes and for determining the correctness of the tax credit claimed, tax incentives/privileges/exemptions availed of and/or computation of tax due and/or penalties, if any. SEC. 7. Valuation Standards for PERA Investment Products. – Each PERA investment product shall be valued in accordance with the valuation methodology, standards and reporting requirements as prescribed by the concerned Regulatory Authority for that type of PERA investment product, in accordance with internationally accepted accounting and valuation standards. SEC. 8. Tax Credits from Qualified PERA Contributions. A. Maximum Annual PERA Contributions. (1) If the Contributor is a resident Filipino citizen, he may make an aggregate maximum yearly contribution of One hundred thousand pesos (P100,000.00) or its equivalent in any convertible foreign currency at the prevailing rate at the time of actual contribution continuously for a period of five (5) years to his PERA. Provided, That if the Contributor is married, each of the SPOUSES shall be entitled to make a maximum yearly contribution of One hundred thousand pesos (P100,000.00) or its equivalent in any convertible foreign currency to his/her respective PERA.

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(2) If the Contributor is an Overseas Filipino, as defined in these Regulations, he shall be allowed to make a maximum yearly contribution of Two hundred thousand pesos (P200,000.00) or its equivalent in any convertible foreign currency at the prevailing rate at the time of actual contribution continuously for a period of five (5) years. Provided, That if the Overseas Filipino is married, the spouse and the children, who must also be Overseas Filipino working and deriving income from abroad, and with the capacity to contract, shall also be entitled to make a maximum yearly contribution of Two hundred thousand pesos (P200,000.00) each, or its equivalent. (3) At the option of the Contributor, he may contribute more than the maximum amount prescribed above, provided, however, that the excess shall no longer be entitled to tax privileges and incentives allowed to qualified PERA contributions. (4)

The Secretary of Finance may adjust the maximum contribution from time to time taking into consideration the present value of the said maximum contribution using the Consumer Price Index as published by the National Statistics Office, fiscal position of the government and other pertinent factors.

C. Contributor’s Entitlement to the 5% Tax Credit. – (1) If the Contributor is a Resident Filipino Citizen, he shall be entitled to claim his PERA Tax Credit against his income tax equivalent to 5% of the actual contribution made during the year but not exceeding 5% of the maximum annual contribution of P100,000. Any excess contribution over the said maximum P100,000 shall not be entitled to an income tax credit of five percent (5%). The limit for the qualified allowable contribution shall be taken on a yearly basis. Contributions to the PERA for the previous years shall no longer be included for purposes of determining the Contributor’s income tax credit for the current year, hence, any excess over the limit in the previous year cannot be carried over to the succeeding year for purposes of availing the five percent (5%) income tax credit. In case of married individuals where both spouses are Contributors, each spouse shall be treated as a different Contributor, each entitled to the five percent (5%) income tax credit. (2) If the Contributor is an Overseas Filipino, as defined in these Regulations, he shall be entitled to claim a tax credit of five percent (5%) of the actual contribution made during the year but not exceeding 5% of the maximum

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annual contribution of P200,000. Any excess contribution over the said maximum P200,000 shall not be entitled to the 5% tax credit. In order to be entitled to the 5% tax credit, the following additional requirements shall be submitted by the Overseas Filipino Contributor: (i) For a non-resident citizen of the Philippines who is working or deriving income from abroad, he shall submit the certificate of registration issued by the Philippine Overseas Employment Administration (POEA). (ii) For an individual who has retained or reacquired his Philippine citizenship under R.A. No. 9225, otherwise known as the “Citizenship Retention and Reacquisition Act of 2003,” he shall submit the Identification Certificate issued by the Bureau of Immigration, to prove his reacquisition of Philippine citizenship, and his income tax return filed in the foreign country, to show that he is earning income in such foreign country. (iii) For the legitimate spouse of the individual referred to in (i) and (ii), the marriage certificate shall be submitted in addition to the documents evidencing income derived from abroad mentioned therein. (iii)For the child of the individual mentioned in (i) and (ii), the birth certificate of the child shall be submitted in addition to the documents evidencing income derived from abroad mentioned therein. A. Treatment of Several PERA Investments. - The Contributor is allowed to maintain a maximum of five (5) PERA at any one time provided, however, that it shall be managed by only one (1) Administrator. Provided, further, that the application of the 5% tax credit shall be based on the total contributions made by the Contributor to his PERA in a particular year but not exceeding 5% of the maximum allowable amount. Tax crediting for PERA maintained in separate accounts shall be as follows: (i) When the total contribution in a given year exceeds P100,000/P200,000, as the case may be, the contribution entitled to the 5% tax credit shall be the first contributions totaling P100,000.00/P200,000 regardless of the accounts to which the contributions are credited. (ii) When the contributions totaling more than P100,000.00/P200,000 are made simultaneously to different accounts, the Contributor shall choose and inform the Administrator which contribution of P100,000.00/P200,000 shall be entitled to the 5% tax credit. D. Processing of PERA Tax Credits Certificate (PERA-TCC). - An application for PERA TCC (BIR Form No.____) duly signed by both the Contributor and the Administrator shall be submitted in three (3) copies by the Administrator, together with the BIR duly stamped “Received” copy of the Annual Report of PERA contributions,

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withdrawals and/or termination, copies of duly acknowledged official receipt of contribution, withdrawal slip and proof of investment of the PERA (sale and purchase of PERA Investment Products) to the RDO having jurisdiction over the Contributor’s registered address not later than the 30th day of January of the following year. The concerned RDO shall evaluate the application and recommend the granting or denial of the claim for tax credit to the concerned Regional Director. A PERA-TCC, for approved claims, and a Letter of Denial, for disapproved claims, shall be issued by the Regional Director. E. Utilization of PERA-TCC. – In the case of resident Filipino citizen, the duly issued PERA-TCC can be used by the Contributor for the payment of his income tax due, except withholding tax. In the case of Overseas Filipino, it can be used for the payment of any national internal revenue tax, except withholding tax. The PERA-TCC can be utilized for a period of five (5) years from the date of issuance of the PERA-TCC or until consumed, whichever comes earlier. Tax credits which remained unutilized after five (5) years shall lose its creditability F. Non-refundability of the PERA-TCC. - In no case shall there be any refund of the tax credit arising from the PERA Contribution. SEC. 9. Tax Treatment of Employer’s Contribution to the Employee’s PERA. – For tax purposes, private employer’s contribution to its/his employee’s PERA shall be treated as follows: i.

On the part of the employee. – (1) If the employer’s contribution for his/its employee’s PERA is within the annual maximum amount of P100,000 allowed to a Contributor, it shall not form part of the employee’s taxable gross income, hence, exempted from income tax. (2) If the employer’s contribution would exceed the annual maximum amount of P100,000 allowed to a Contributor, or would contribute beyond 5year limit and when the employee is already more than 55 years old at the time of the contribution, the excess over the maximum contribution shall be considered as taxable income on the part of the employee. If the employee concerned is a manager or supervisor, the excess shall be classified as fringe benefits subject to the fringe benefits tax pursuant to Section 33 of the Tax Code of 1997.

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If the employee belongs to the rank and file, the excess shall be added to the gross taxable compensation of the employee and shall be subject to the withholding tax on compensation. If the employee is a Minimum Wage Earner (MWE), he shall cease to become an MWE and his entire earnings, together with the employer’s contribution to his PERA, shall be subject to withholding tax on compensation, and consequently, to income tax. (B) On the part of the employer. – (1) If a private employer’s contribution to its/his employee’s PERA is within the maximum annual contribution allowed to a Contributor, the employer can claim the actual amount of his/its contribution as deduction from his/its gross income. Such contribution of the employer shall be exempted from withholding tax on compensation, the provisions of Section 34(K) of the Tax Code and its implementing rules notwithstanding. (2) If the employer’s contribution would exceed the annual maximum allowable amount or the contribution made is beyond the 5-year period and the employee-Contributor is already more than 55 years old when the employer made its/his contribution, the employer’s contribution in excess of the annual maximum allowable amount of P100,000 shall be subject to the final withholding tax on fringe benefits under Section 33 of the Tax Code of 1997, as amended, if the beneficiary-employee is a manager or supervisor, or to withholding tax on compensation, if the employee is considered as rank and file. Hence, the employer is required to withhold and remit to the BIR the corresponding withholding tax due therefrom, otherwise, he cannot claim such excess as a deduction from its/his gross income pursuant to Section 34 (K) of the Tax Code. If the employee is a MWE, his total compensation income, together with the employer’s contributions to the PERA shall be subjected to withholding tax on compensation in order to be allowed as a deductible expense. SEC. 10. Tax Treatment of the Qualified PERA Investment Income. Investment income of the Contributor consisting of all income earned from the investments and reinvestments of the maximum amount allowed herein to his PERA coming from (a) the Contributor’s own contribution to his qualified PERA investment products, including (b) his employer’s contribution to his PERA to the extent of the maximum allowable amount; (c) the cash or other assets representing the income from the qualified investments described in (a); and (d) the cash or other assets representing the income from the cash or other asset described in (b), shall be exempt from income tax, including the following, provided that such income shall not be withdrawn before the Contributor has made at least five (5) yearly contributions to his PERA and has not reached the age of fifty-five (55) years:

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(i) the 20% final withholding tax on interest from any currency bank deposit, yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements, for as long as the bank wherein the Contributor placed his deposits is accredited by the BSP; (ii) the applicable tax on interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the BSP; (iii) the 7.5% final tax on interest income from a depository bank under the expanded foreign currency deposit system; (iv)the 10% tax on cash and/or property dividends actually or constructively received from a domestic corporation or from a joint stock company, insurance or mutual fund company and regional operating headquarters of multinational companies; (iv) the capital gains tax on the net capital gains realized from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation; (vi) regular income tax Provided, however, that non-income taxes, if applicable, relating to the above investment income shall remain payable, including the following: (i) Percentage tax, such as the stock transaction tax in case of sale of shares of stock that are listed and traded through the local stock exchange; (ii) Value-added tax; (iii) Documentary stamp tax. (iv) Donor’s tax; and (v) Estate tax. All income earned from the qualified investment products coming from the contribution to the Contributor’s PERA in excess of the maximum allowable amount and/or earlier withdrawn as defined in these Regulations shall not be entitled to the income tax exemption provided herein. SEC. 11. Tax Treatment of PERA Distributions. - At the option of the Contributor, contributions to his qualified PERA investment products and/or the earnings arising therefrom, can be withdrawn after making contributions for at least five (5) years and upon reaching the age of fifty-five (55) years. For tax purposes, distribution of the

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qualified PERA contributions, together with its earnings shall therefore be treated as follows: i) If the distribution is made after the Contributor has made contributions to the PERA for at least five (5) years prior to the year of distribution and at the time when the Contributor is at least fifty-five (55) years old, the amount received by the Contributor, or, in case the Contributor dies, by his heirs or beneficiaries, whether in a lump sum or pension for a definite period or lifetime pension, shall be excluded from the gross income of the Contributor and shall not be subject to income tax and shall also be excluded from the gross income in the hands of his heirs or beneficiaries, as the case may be. ii) In all other cases (i.e., when the Contributor has made contributions to his PERA short of the 5-year period and when the Contributor has not yet reached the age of fifty-five (55) years), the Administrator shall make the distribution of the PERA assets as follows: (i) If the recipient is the Contributor, the Administrator shall deduct from the PERA assets of the Contributor the tax credits already availed by the Contributor from his PERA and all the taxes not paid in accordance with Rule ____hereof; provided, however, that the Contributor is no longer required to report as income any amount he received from his PERA. Provided, further, that in case such amount is subsequently transferred by the Contributor to his heirs or beneficiaries as gift, bequest, or devise, the amount so transferred shall be subject to the applicable provisions of Title III (Estate and Donor’s Taxes) of the Tax Code, as amended. (ii) If the recipients are the heirs or beneficiaries of the Contributor following the death of the Contributor, the PERA assets shall be excluded from the gross income in the hands of his heirs or beneficiaries but shall be subject to estate tax. SEC. 12. Tax Treatment of Fees Derived by Administrators, Custodians and Investment Managers. – All income derived by Administrators, Custodians and Investment Managers for services rendered to the Contributor as such shall be subject to the applicable national internal revenue taxes. SEC. 13. Premature Termination. – A. Early Withdrawal . - Withdrawal of the PERA before the Contributor has made five (5) contributions and prior to Contributor’s reaching the age of fifty-five (55) years or prior to the Contributor’s death shall be considered as early withdrawal and shall be subject to tax and/or penalties provided under Subsection B hereof. Provided, however, that the imposition of tax and/or penalties herein mentioned shall not apply on early withdrawals arising from the following circumstances:

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(1) Immediate transfer of proceeds to another PERA investment product and/or another Administrator; (i) the entire proceeds of the PERA are immediately transferred to another PERA investment and/or another Administrator for investment to another PERA after its early withdrawal. (ii) the Contributor, after giving the instruction to terminate the PERA or to withdraw the qualified PERA Investment Products, directs the Administrator to transfer the entire proceeds therefrom to other qualified PERA Investment Products and/or to another accredited Administrator. (2) Accident or illness-related hospitalization in excess of thirty (30) days. – If the withdrawal is due to accident or illness-related hospitalization in excess of 30 days, a duly notarized doctor’s certificate attesting to the said event shall be attached to the Notice of Termination/Withdrawal/Transfer to be submitted to the BIR. (3) The Contributor has been subsequently rendered permanently totally disabled as defined under the Employees Compensation Law or Social Security System’s Law. A certification duly issued by the government agency that the Contributor had been permanently totally disabled shall be attached to the Notice of Termination/Withdrawal/Transfer to be submitted to the BIR. (4) Distribution to the heirs of the Contributor in case the Contributor dies. (5) Distribution of the funds for which the Contributor did not enjoy any tax incentive. In all instances, the Administrator shall give notice of such termination or withdrawal to the BIR, Attention: the Revenue District Officer having jurisdiction over the registered address of the Contributor, within ten (10) days from the date of receipt of the written instruction by the Contributor for the early withdrawal of the PERA or any part thereof. B. Imposition of Tax/Penalty. – All early withdrawals not otherwise allowed by law shall be subject to penalty payable to the RDO having jurisdiction over the place of business of the Contributor, provided that the penalty shall in no case be less than the tax incentives enjoyed by the Contributor. Upon receipt of the written instruction of the Contributor for the early withdrawal, the Administrator shall forthwith compute and withhold from the proceeds due to the Contributor the following: (1) The five percent (5%) tax credit already claimed by the Contributor;

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(2) Withholding tax on compensation/Final Withholding Tax on Fringe Benefits due on the employer’s contribution; (3) Income tax due on all income from investment and/or re-investment; (4) the 20% final tax on interest from any currency bank deposit, yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; (5) the applicable tax on interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the BSP; (6) the 7.5% final tax on interest income from a depository bank under the expanded foreign currency deposit system; (7) the 10% final tax on cash and/or property dividends actually or constructively received from a domestic corporation or from a joint stock company, insurance or mutual fund company and Regional Operating Headquarters of multinational companies; (8) the capital gains tax on the net capital gains realized from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation; or (9) regular income tax. The distribution of funds for which the Contributor did not enjoy any tax incentive shall not be subject to any early withdrawal penalty. Provided, however, that early withdrawal of the employer’s contribution to the PERA shall be subject to income tax reckoned from the date the employer contributed to the PERA to the extent of the contribution not exceeding the maximum allowable amount. No penalty shall be collected from the early withdrawal of employer’s contribution in excess of the maximum allowable contribution considering that the corresponding taxes due therefrom have already been collected at the time the funds were contributed. Computation of tax on early withdrawal shall be reckoned from the date the benefit accrues to the Contributor (e.g., on the date the 5% tax credit has been claimed in the tax return; on the date the employer contributed to the employee’s PERA, etc.) and shall be subject to the penalties and interest provided under Sections 248 and 249 of the Tax Code of 1997 computed from the date the tax is supposed to be due until the actual date of payment. The tax return shall be filed in the RDO having jurisdiction over the registered address of the Contributor and in case of withholding tax, at the RDO having jurisdiction over the withholding agent’s registered address.

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SEC. 15. Other Penalties. – In addition to the penalties provided under the Tax Code of 1997, as amended, a fine of not less than Fifty thousand pesos (P50,000.00) nor more than Two hundred thousand pesos (P200,000.00) or imprisonment of not less than six (6) years and one (1) day to not more than twelve (12) years or both such fine and imprisonment, at the discretion of the court, shall be imposed upon any person, association, partnership or corporation, its officer, employee or agent, who, acting alone or in connivance with others, who shall: (a) Act as Administrator, Custodian or Investment Manager without being properly qualified or without being granted prior accreditation by the concerned Regulatory Authority; (b) Invest the contribution without written or electronically authenticated authority from the Contributor, or invest the contribution in contravention of the instructions of the Contributor; (c) Knowingly and willfully make any statement in any application, report, or document required to be filed under the PERA Act, which statement is false or misleading with respect to any material fact; (d) Misappropriate or convert, to the prejudice of the Contributor, contributions to and investments or income from the PERA; (e) By gross negligence, cause any loss, conversion, or misappropriation of the contributions to, or investments from the PERA; or (f) Violate any provision of the PERA Act or PERA Rules and regulations issued pursuant to the said Act. Notwithstanding the foregoing, any willful violation by the accredited Administrator, Custodian or Investment Manager of any of the provisions of the PERA Act, or its implementing rules and regulations, or other terms and conditions of the authority to act as Administrator, Custodian or Investment Manager may be subject to the administrative sanctions provided for in applicable laws. The above penalties shall be without prejudice to whatever civil and criminal liability provided for under applicable laws for the same act or omission. SEC. 16. Abuse of the Tax Exemption and Privileges. – Any person, natural or juridical, who unduly avails of the tax exemptions and privileges granted herein, possibly by co-mingling his investments with the Contributor’s PERA when such person is not entitled hereto or conniving with the Administrator/Investment Manager/Custodian in circumventing the provisions of the PERA Act and the PERA Rules shall be subject to the penalties provided in Section 15 hereof. In addition, the offender shall refund to the government double the amount of the tax exemptions and privileges enjoyed under the

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Act or these Regulations, plus interest of twelve percent (12%) per annum from the date of enjoyment of the tax exemptions and privileges to the date of actual payment. SEC. 16. Grounds for Disqualification, Suspension or Revocation of Accreditation of Administrator, Investment Manager or Custodian: The accreditation of an Administrator, Investment Manager and Custodian may be refused, revoked, suspended, or limitations placed thereon by the concerned Regulatory Authority if, after due notice and hearing, the concerned Regulatory Authority or the BIR determines that the applicant or licensee: (1) Has willfully violated any provision of the PERA Act, the PERA Rules or any order made , or any other law administered by the concerned Regulatory Authority or the BIR, or has failed to supervise, with a view to preventing such violation, another person who commits such violation; (2) Has willfully made or caused to be made a materially false or misleading statement in the application for pre-qualification or report filed with the concerned Regulatory Authority, or has willfully omitted to state any material fact that is required to be stated therein or necessary to make the statement therein not misleading; (3) Has failed to maintain the qualifications or requirements for accreditation prescribed under the PERA Rules or has failed to maintain compliance with any of them; (4) Any of its directors or officers has been convicted by a competent body of an offense involving fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, perjury, or of a violation of securities, commodities, banking, real estate or insurance laws; (5) Is enjoined or restrained by a competent body from engaging in securities, commodities, banking, real estate or insurance activities; (6) Is subject to an order of a competent body refusing, revoking or suspending any license or other permit under the PERA Act, the PERA Rules, any other law or regulation administered by the concerned Regulatory Authority. SEC. 17. Non-Assignability of the PERA Assets. – No portion of the qualified PERA Assets may be assigned, alienated, pledged, encumbered, attached, garnished, seized or levied upon. PERA Assets shall not be considered assets of the Contributor which are entitled to certain tax incentives and privileges for purposes of insolvency and estate taxes. SEC. 18. Repealing Clause. - All existing rules, regulations, revenue issuances, rulings or parts thereof, which are contrary to or inconsistent with the provisions of these Regulations are hereby amended, modified or repealed accordingly.

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SEC. 19. Effectivity. - These Regulations shall take effect fifteen (15) days after publication in any newspaper of general circulation.

MARGARITO B. TEVES Secretary of Finance Recommending Approval:

SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue

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